Pricing a Bestseller: Sales and Visibility in the Marketplace for Mobile Apps

摘要

The growth of mobile applications on smartphones and tablets (" apps") ranks as one of the most astonishing technological developments in recent past. Over 700,000 apps are available for immediate download from app markets (e.g., App Store and Google Play). These marketplaces are a significant disruptive change in the way content is created and consumed. On the supply side, they provide content creators direct, instantaneous, and popular distribution systems where they can implement their own marketing and pricing policies, cutting out middlemen. Taking a combined data-driven and structural analysis approach, this paper focuses on the relationship between pricing decisions and marketplace visibility. Our aim is to empower content creators by offering strategic guidance on how to leverage the marketplaces' flexibility. Specifically, the market platforms feature "top-ranked" charts that list apps by number of downloads. A high position in these charts is followed by a remarkable boost in demand, according to industry sources. We call the effect of top-rank position on future sales an indirect effect. First, we postulate a reduced form model to estimate the magnitude of this indirect effect. Our results show that it is statistically significant and substantial. Second, we study app pricing decisions in a model that incorporates our earlier findings. Surprisingly, we find that accounting for the indirect effect may give rise to optimal price cycles, where the seller alternates between a high price to boost revenue and a low one to enhance visibility. We find evidence supporting this pricing behavior in practice.